The market absorption rate is a guide used by the real estate industry to determine the number of months of inventory. An absorption Rate of 5-7 is considered a normal market. Less than 5 is a sellers market and more than 7 is a buyers market. The calculation to determine the Absorption Rate is:
# Of Current Active Listings
# Of Reported Sales For The Last 30 Days
Normal Market – In a normal market there is a 5-7 month supply of homes. A normal market has a balance level of inventory where the market is not leaning the in the seller’s or buyer’s favor.
Seller’s Market – In a seller’s market there is less than 5 months supply of homes. Since there are fewer homes to choose from, sellers are in control and buyers have to be willing to pay top dollar to get the home that they want. Multiple offers are often the norm in a seller’s market.
Buyer’s Market - In a buyer’s market there is more than 6 months supply of homes. Buyer’s are in control since there are so many homes from which to choose from. Sellers often have to give an incentive (pay for closing costs or pay for repairs) to buyer’s to buy their home.